MAN MAW, Myanmar (Reuters) - Output from a mysterious Myanmar tin mine that has disrupted the global market in the metal is falling sharply and deposits could be depleted in “two to three years”, senior mine officials told Reuters.

A surprise discovery of large quantities of tin has propelled the formerly isolated Southeast Asian country into the position of third largest producer of the industrial metal, and contributed to a sharp fall in prices in the last three years.

Much of it comes from the Man Maw mine deep inside the self-proclaimed “Wa State”, a secretive, China-dominated statelet the size of Belgium controlled by Myanmar’s most powerful ethnic armed group, the 30,000-strong United Wa State Army (UWSA).

Reuters was the first media organization to visit the mine, tucked away in cloud-shrouded hills straddling Myanmar’s rugged eastern border with China, as the UWSA takes its first tentative steps toward opening to the world after decades of isolation.

“The production is falling sharply. It may be depleted in two to three years,” said Jia Xu Bing, deputy leader of the Wa State Industrial Mining Bureau’s survey team, citing estimates based on output. He declined to elaborate.

“We do not have the capacity to do a comprehensive evaluation. We will stop the operations once workers’ safety becomes a concern,” Jia added.

Myanmar’s tin production has surged 10-fold of the past four years. At an estimated 33,000 tons of tin concentrates last year, the country was responsible for nearly all of China’s imports of tin ore, a key ingredient for making the solder widely used in electronics such as smartphones and tablets.

Some metals analysts have previously argued that the output from the Man Maw mine was likely peaking, but the lack of geo-exploration in the Wa State and highly restricted access to the area has left much uncertainty.

Tin prices closed up nearly 1 percent on Tuesday, although they remained below a two-year high struck earlier this month. News that output is falling from Man Maw may prompt concern about tight global supplies, said Peter Kettle, manager of markets at industry group ITRI.

“We’re getting close to a level (in inventories) where people will get worried about supplies,” he said. “Myanmar was seen as the source that would fill all the gaps in the market as other producers cut back. But now that’s a bit questionable.”

The Wa region is virtually unknown to outsiders - in recent decades Westerners have had less access than to North Korea.

The UWSA is blacklisted by the United States for alleged drug trafficking, accusations its leaders deny.

PRODUCTION SLOWDOWN

Interviews with company managers and officials - and the appearance of the mine itself when Reuters visited - also suggested a slowdown.

Production from two of the seven major mining companies at Man Maw, which covers 1.5 square miles (4 square km), had been “close to zero” since last year and they are struggling to find new resources, officials said.

While dozens of tight-packed shacks carrying signs in Chinese promising services from clinics to karaoke were seen in the Man Maw hills, the number of workers, mostly from China, has halved to about 1,000 from the peak in 2014, officials said.

Company and government officials said several large open pits had been depleted and most of the remaining mining was underground, pushing up costs for miners.

Tin mine seen in Man Maw at ethnic Wa territory in northeast Myanmar October 5, 2016. Picture taken on October 5, 2016. REUTERS/Soe Zeya Tun

The quality of the ore now mined had also declined sharply, they said, with most deposits containing around 2-3 percent tin by weight, compared with an unusually high-grade of more than 10 percent two years ago.

“The production is certainly in decline,” said International Tin Research Institute analyst Cui Lin, who visited the mine earlier this year.

“It’s hard to say how long it might last as Chinese companies are unwilling to invest more in geo-exploration due to political risks in Wa.”

As the largest ethnic armed group, the UWSA is key to the peace process launched by Myanmar’s leader, Aung San Suu Kyi. The group has not clashed with the military in recent years, but did not sign a landmark ceasefire deal last year.

The rise of Man Maw underscores the challenges faced by Myanmar’s first democratically-elected government in decades, as Suu Kyi tries to shore up budget revenue and control the exploitation of the country’s mineral riches in areas controlled by ethnic armed groups.

“It’s hard to say how much is left underneath the hills,” the Industrial Mining Bureau’s deputy head Li Seck said. “We are counting on China for talents, technology and money.”

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ORE STOCKPILES

Deep in the hills three hours’ drive northwest of regional capital Pangsan, the mine is controlled by the Wa State Treasury Department, whose head, Pao Yu Liang, is a senior UWSA commander indicted in the United States on drug trafficking charges.

The treasury takes an “ore tax” of a quarter of concentrates mined by the seven Wa-China joint ventures operating at Man Maw.

The authority then stockpiles the ore in a depot near its border with China and trades with Chinese buyers based on daily trading price from the Shanghai Metal Exchange.

“Tin price goes up and down, so the treasury only sells them when price is good,” said Jia of the Wa treasury’s Industrial Mining Bureau, adding that mining was now the top revenue source in one of the poorest regions in Asia.

The treasury declined an interview request. It was not clear how much stockpile the authority holds and how its trading decisions were made, which could affect global tin prices.

The seven companies in Man Maw are partly funded by Chinese investment and controlled by top Wa leaders, according to senior officials and people with close leadership ties.

Yun Hsin is one of the five mining firms that still sees output in Man Maw. While part of its processing facilities was shut, about a dozen of workers were seen operating grinding machines adjacent to its pits when Reuters visited.

Chen Ta Yung, manager of the firm of about 80 employees, said as the grade of ore extracted had declined, strict rules had been imposed to lower costs and limit the environmental impact of mining. Companies are now only allowed to ship processed deposits containing 18.5-20 percent tin by weight.

Sitting in a truck carrying 72 tons of tin concentrates, Tzu Pin was among 10 drivers waiting in Pangsan for China’s border control to reopen after lunch.

After crossing the small river Yunnan that marks the frontier, the ore will be graded and shipped to China’s “tin capital” Gejiu in Yunnan, where many of the country’s smelters are based.

Tzu, a 26-year-old from China, hopes the Wa’s tin boom will last.

“It’s good for the local economy,” he said. “I hope it won’t be depleted soon.”

Additional reporting by Chris Prentice in NEW YORK; Editing by Alex Richardson and Lisa Shumaker